Last update: 03.10.2024 16:01
As an employee, you are generally insured under the second pillar. If you leave your pension fund before drawing a pension, it will transfer your termination benefit either to a new pension fund or to your BVG vested benefits account. In this article, we look at everything to do with vested benefits accounts, such as opening, fees and costs, switching, closure, withdrawal in various cases and tax consequences.
Occupational benefits insurance (second pillar) is governed by the law on occupational benefits insurance. This regulates, among other things, from which salary you receive which benefits (pension, lump sum) for risks (old age, death, disability). The transfer of your capital when you change employer between your old and new pension fund is governed by the Vested Benefits Act. And this is where the pension fund’s vested benefits account comes into play.
We answer these questions about vested benefits accounts and provide tips:
What is a vested benefits account?
If you are insured under Pillar 2 and leave your pension fund before the insured event (old age, death or disability), you are entitled to the entire retirement assets accumulated to date. Until you join a new pension fund, the termination benefit must remain earmarked in the pension fund cycle. This can be done either as a vested benefits account or vested benefits custody account with a bank or as a policy with an insurance company.
A vested benefits account is therefore a special account in which your termination benefit from the occupational benefit scheme is held. You need a vested benefits account if – for whatever reason – you leave your employer’s pension fund and do not yet have a new pension fund to which your previous pension fund can transfer your termination benefit. Such reasons may include
- When you change jobs, you take a break (time out, no new job yet)
- you take a break from your job (maternity leave, longer trip, stay abroad, training and further education, sabbatical),
- Bye-bye Switzerland! As a cross-border commuter or foreigner, you say goodbye to Switzerland and go to work abroad
- you give up your job or become self-employed
- your salary falls below the entry threshold for the occupational benefit scheme (e.g. due to part-time work or a change of job)
Your termination benefit will then be transferred to an account of your choice, the vested benefits account. This account is held in your name and managed by a vested benefits foundation, which “parks” the money for you until you find a new job in Switzerland, reach retirement age or withdraw the money for another reason. It therefore serves as “blocked pension fund assets”.
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How can you pay into a vested benefits account or open a vested benefits custody account?
To open a vested benefits account or a vested benefits custody account in Switzerland, contact a vested benefits foundation. As specialists, these manage both vested benefits accounts and vested benefits custody accounts. You can find reviews of vested benefits accounts here on finpension and frankly.
Our tip: park too high a termination benefit in a vested benefits custody account
Sometimes the new pension fund is “worse” than the old one. Then you don’t need all the money to purchase benefits from the new fund. In this case, you can (and must) pay the surplus amount into a vested benefits institution.
You choose a foundation of your choice. The vested benefits account is opened online. You will usually need the following information:
- Passport or identity card,
- Your AHV number and the account or contract number of the previous pension fund (pension fund statement or statement of the existing vested benefits account)
- a cell phone for legitimization,
- an e-mail address
Once the Foundation has processed your application, you will receive the account opening documents and the account number. You can then have your termination benefit transferred to the newly opened vested benefits account.
With the classic BVG vested benefits account, you can park your pension assets in the short term. If you do not need to transfer the vested benefits to a new pension fund in the medium to long term, it is worth considering an investment with a higher return in a vested benefits custody account.
How can I change a vested benefits account?
Competition between vested benefits foundations is provided for by law. Therefore, unlike with a pension fund, you can choose your vested benefits institution yourself and change at any time. Around 75% of vested benefits assets are held with banks, the rest with insurance companies. In addition to a pure savings solution in a vested benefits account, it is also possible to save in securities with a vested benefits custody account, although only less than 20% of vested benefits account holders make use of this option.
Changing your vested benefits account is easy. First, you open a new vested benefits account with the desired provider. You then inform your current vested benefits foundation about the account change and apply to transfer your assets to the new account. In most cases, you can initiate the transfer directly via your new provider.
The previous foundation is obliged to comply with your transfer request. Some foundations have notice or processing periods (e.g. one month) before they pay out the money. Once the balance has been transferred to the new account, the old account will be closed. The entire process is fairly straightforward for you as the account holder and is usually free of charge.
If you have chosen a vested benefits custody account, your pension funds will be sold. This is because securities are never transferred between providers; transfers are always made by bank transfer.
Our tip: Check forgotten vested benefits assets
The LOB Substitute Occupational Benefit Institution has several billion francs in forgotten termination benefits. If you are missing assets from the 2nd pillar, you can request a free search from the LOB Guarantee Fund.
How high are the fees for a BVG vested benefits account?
The fees for a vested benefits account vary depending on the provider. In the past, vested benefits accounts were often free of charge. Nowadays, however, providers always charge a monthly or annual account management fee. Some providers also charge additional fees for certain services, such as account statements or account transfers.
What is the interest rate on the BVG vested benefits account?
Unlike pension funds, vested benefits foundations in Switzerland are not obliged to pay a minimum interest rate. The interest rate on a vested benefits account is therefore generally lower than on a savings account. Interest rates vary depending on the provider and are adjusted regularly, similar to savings accounts. Such interest rate adjustments are usually made at the beginning of the month, but are not usually actively communicated. You will usually only find out when you receive your annual account statement by post.
Some providers offer preferential interest rates that are well above average. In principle, you can choose the vested benefits account with the highest interest rate. Note whether the provider charges you high costs, e.g. for account management or on closure. We advise against such providers. Fees for withdrawing vested benefits for home ownership are also common and can amount to several hundred francs.
Our tip: check the real interest rate on the vested benefits account
The current inflation expectation is around 2.0%. This is higher than the interest rate of all providers. So you are losing money with your vested benefits account. If your investment horizon spans many years, you can consider a vested benefits custody account.
Can I continue my pension provision without a job and without a vested benefits account?
That’s fine. Within three months of leaving the mandatory pension scheme, you can take out voluntary insurance with the Substitute Occupational Benefit Institution as an individual. You can decide whether you only want to continue saving for your old age or take out the entire pension yourself. If you want to insure yourself, you will need to fill out a few forms. You will also need to add a few supporting documents (such as your last pension certificate and a copy of your leaving certificate).
Vested benefits account and new job: what do I have to do?
Congratulations on your new job! The Vested Benefits Act obliges you to transfer all termination benefits to your new employer’s pension fund when you join. This means that you must always close your vested benefits account(s). The new pension fund will support you in this process.
In practice, when you join the new pension fund, you must sign a declaration stating that you are transferring your termination benefit in full. Otherwise, however, there is no control and we are not aware of any sanctions if you do not transfer the capital to the new fund.
How do I have to declare the vested benefits account in my tax return?
This is the same as for pillar 3a. You do not have to declare assets, income or withholding tax from your vested benefits in your tax return as long as they are held by the pension foundation. You only have to declare the withdrawn capital in your tax return when you make a withdrawal. Capital tax then applies.
Our tip: defer withdrawal of the credit
With most vested benefits foundations, you can defer the withdrawal of your assets for 5 years beyond retirement age. This can be very worthwhile in terms of taxes. This is because you do not have to pay tax on income from vested benefits assets and the assets are not subject to wealth tax until they are paid out.
What happens to my vested benefits account when I leave Switzerland?
If you leave Switzerland, the impact on your vested benefits account depends on where you go:
- If you move to an EU or EFTA member state and continue to be subject to compulsory insurance, the mandatory portion of your vested benefits cannot be paid out. This will continue to be managed in accordance with Swiss regulations. You can have the non-mandatory portion of your assets paid out when you leave Switzerland. Or you can leave it until you retire.
- If you move to a country outside the EU/EFTA, you will be able to receive all the vested benefits.
Not sure whether you are subject to compulsory insurance in your new country of residence? The best way to find out is to contact the LOB Guarantee Fund.
How many vested benefits accounts are permitted?
Up to two per person. When you leave your current pension fund, you can instruct it to transfer your assets to a maximum of two accounts with two different vested benefits foundations. Splitting the termination benefit in this way has two major advantages.
Firstly, you reduce your risk of loss if your provider goes bankrupt. This is because the banks’ deposit protection scheme only protects deposits up to a maximum of CHF 100,000 per bank and per customer.
Secondly, you can withdraw your credit later in stages. Withdrawing in stages reduces the capital tax. You make significant tax savings. You can find out more about this in the article on capital tax.
Our tip: Swiss cantonal banks with a state guarantee
With the exception of the cantonal banks of Vaud, Bern and Geneva, all cantonal banks have a state guarantee in addition to deposit protection. This means that your assets there are also protected beyond CHF 100,000 in the event of the bankruptcy of the cantonal bank.
How high is the tax when a vested benefits account is paid out?
The payout of a vested benefits account is subject to capital disbursement tax. This is progressive and depends on the place of residence. You can find out more about this in the article on capital tax.
Can I use my vested benefits account for home ownership?
Yes, you can use your vested benefits account to buy a home. However, you can only use the funds from the vested benefits account under certain conditions. For example, it must be residential property that you live in yourself. Financing a second home is excluded. Home ownership in Switzerland or abroad is possible (e.g. for a cross-border commuter). In addition, it must always be your main residence. There is a further condition for people aged 50 and over. They may only withdraw the vested benefits they had on their 50th birthday or half of their current vested benefits. The higher of the two amounts can be withdrawn. And finally, you must withdraw at least CHF 20,000 in advance.
In the case of a payout as a result of home ownership promotion, both a withdrawal of the total assets and a partial withdrawal are possible. You can also repay mortgages with money from your vested benefits account.
Can I invest my vested benefits account in funds?
Yes, it is possible to invest your FC assets in funds with a vested benefits custody account. Many vested benefits foundations and banks offer this. You can then invest in pension funds with shares and bonds in the vested benefits custody account and choose from several investment strategies. Depending on the provider, low-cost index funds or active funds are used. By investing in funds, you can achieve a higher return in the long term than with a vested benefits account.
Our tip: no vested benefits deposit for short breaks from work
A vested benefits account is a good choice for you if you only want (or need) to save your vested benefits for a short period of time. This is because when you start a new job, you will generally have to close your vested benefits account. If stock market prices have fallen in the meantime, you will have to realize a price loss: You transfer fewer vested benefits assets to the new pension fund than the old one paid out to you. You should therefore only invest your vested benefits in securities with an investment horizon of several years.
In principle, it is possible to switch from a vested benefits account with interest to a vested benefits custody account with securities or vice versa at any time.
Is a pension from a vested benefits account possible?
No, that is not possible. A pension from a vested benefits account is not possible. A pension from the second pillar is only paid from a pension fund. If you would like a pension from a vested benefits account instead of a lump-sum payment, you must therefore join a pension fund to which you contribute your vested benefits assets. In other words, you must be employed and earn more than the BVG minimum threshold (as at 2024: at least CHF 22,050). You will then have a choice when you draw your retirement assets from the pension fund: you can draw a lump sum, a pension or a mixture of the two.
Unfortunately, it is not possible to withdraw the vested benefits account directly as a pension, so you can consider the following alternative: You can take out pension insurance with an insurance company instead. Although this is not a pension from the vested benefits account, it works in a similar way. You have the vested benefits capital paid out and pay the proceeds into the insurance company as a single premium. This pays you a lifelong, annual pension.
Please note that, as with any insurance solution, acquisition costs will be deducted first and your assets will be burdened with ongoing administration costs and premiums to cover your longevity risk. You may be better off with a withdrawal plan for your vested benefits assets. We recommend that you check this with an independent advisor.
How is withdrawal, early withdrawal or partial withdrawal of the vested benefits account possible?
Early withdrawal of your vested benefits account is only possible in a few cases. You can find this in this article.
What happens to my vested benefits account if I become unemployed?
If you become unemployed, you can open a vested benefits account or continue an existing one. The assets saved in the vested benefits account are retained during unemployment and are managed by the Vested Benefits Foundation. The credit balance remains secured in the vested benefits account until you find a new job.
If you want to continue paying into the mandatory occupational pension scheme while you are unemployed, the BVG Substitute Occupational Benefit Institution is an interesting solution. This foundation was set up on behalf of the federal government. You can open a vested benefits account with the Substitute Occupational Benefit Institution, transfer your existing retirement assets to it and continue to make savings contributions for old age and insure yourself against disability and death while you are unemployed. However, you will then also pay the employer contributions. Please note that you can only insure mandatory benefits there, but not non-mandatory benefits:
Our tip: Voluntary insurance in the event of employer termination
If you are aged 58 or over and your company terminates your contract, you can remain voluntarily insured with your previous pension fund. You will then pay both employee and employer contributions for the risks of death and disability as well as the administrative costs. Your retirement assets will no longer grow through savings contributions, but you will remain insured against existential risks and will later receive a retirement pension from the pension fund.
Can I buy into the vested benefits account? Is it possible to make a deposit?
No, a purchase into the vested benefits account or a voluntary payment into the vested benefits account is neither possible nor permitted. You can only have 2nd pillar assets transferred to the vested benefits account. These can come from a pension fund, another vested benefits account or an FC policy.
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